Filed: Sep. 29, 2016
Latest Update: Mar. 03, 2020
Summary: Case: 16-11326 Date Filed: 09/29/2016 Page: 1 of 28 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 16-11326 Non-Argument Calendar _ D.C. Docket No. 2:14-cv-00014-MHH OIL EQUIPMENT COMPANY INC., Plaintiff-Appellant, versus MODERN WELDING COMPANY INC., et al., Defendants, MODERN WELDING COMPANY OF GEORGIA INC, Defendant-Appellee. _ Appeal from the United States District Court for the Northern District of Alabama _ (September 29, 2016) Before JORDAN, ROSENBAUM
Summary: Case: 16-11326 Date Filed: 09/29/2016 Page: 1 of 28 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 16-11326 Non-Argument Calendar _ D.C. Docket No. 2:14-cv-00014-MHH OIL EQUIPMENT COMPANY INC., Plaintiff-Appellant, versus MODERN WELDING COMPANY INC., et al., Defendants, MODERN WELDING COMPANY OF GEORGIA INC, Defendant-Appellee. _ Appeal from the United States District Court for the Northern District of Alabama _ (September 29, 2016) Before JORDAN, ROSENBAUM,..
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Case: 16-11326 Date Filed: 09/29/2016 Page: 1 of 28
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 16-11326
Non-Argument Calendar
________________________
D.C. Docket No. 2:14-cv-00014-MHH
OIL EQUIPMENT COMPANY INC.,
Plaintiff-Appellant,
versus
MODERN WELDING COMPANY INC., et al.,
Defendants,
MODERN WELDING COMPANY OF GEORGIA INC,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Northern District of Alabama
________________________
(September 29, 2016)
Before JORDAN, ROSENBAUM, and JULIE CARNES, Circuit Judges.
PER CURIAM:
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This is a products-liability case about an allegedly defective underground
storage tank that began to leak. Plaintiff-Appellant Oil Equipment Company Inc.
(“OEC”) purchased the tank from the manufacturer, Defendant-Appellee Modern
Welding Company of Georgia, Inc. (“Modern Welding”), 1 and later demanded a
replacement under a limited warranty when testing revealed a breach in the tank.
Upon investigation, Modern Welding determined that the warranty did not apply
because it appeared that the tank’s problems were caused by OEC’s improper
installation of the tank. More precisely, Modern Welding believed that the cause
was the bedding material on which the tank sat. After OEC sent a demand letter
raising the possibility of litigation, Modern Welding responded by asking OEC to
notify it of when OEC planned to dig up and replace the tank so that Modern
Welding could witness the exhumation and inspect the tank.
OEC, however, decided to remove and replace the tank without notifying
Modern Welding. By replacing the tank, OEC destroyed any evidence that
Modern Welding could have obtained from the bedding, although OEC took steps
during the removal process to gather evidence showing that the tank was properly
installed. Then, after removing the tank, OEC took no action to preserve it, and
instead left the tank exposed to the elements for over a year before filing suit in
1
The claims against the two other original defendants, Modern Welding Company, Inc.,
and Modern Welding Company of Florida, Inc., were dismissed with prejudice by the district
court on February 22, 2016.
2
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state court. Finally, while litigation was ongoing, OEC had destructive testing
performed on the tank without notifying Modern Welding.
At summary judgment, the district court found that OEC destroyed critical
evidence in bad faith. Using its inherent powers, the court dismissed the lawsuit
with prejudice as a sanction for OEC’s spoliation of evidence, finding that no
lesser sanction would suffice. OEC appeals, arguing that there was no spoliation
and no bad faith, and that, even if some sanction was appropriate, dismissal was
more severe than warranted under the circumstances. After careful review, we
conclude, based on this Court’s decision in Flury v. Daimler Chrysler Corp., 427
F.3d 939 (11th Cir. 2005), that the district court acted within its discretion by
dismissing the case with prejudice.
I. BACKGROUND
A. Factual Background
OEC is in the business of selling, servicing, and installing petroleum
equipment. In April 2010, OEC purchased a 12,000-gallon “Glasteel II”
underground storage tank (“Glasteel II tank” or the “tank”) from Modern Welding,
the manufacturer, for $12,460.00. OEC planned to install the tank for another
company at a gas station in Montgomery, Alabama. The tank would later hold
both gasoline and diesel fuel.
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The Glasteel II tank has three main components. First, an inner steel tank
holds the product (the “steel tank” or “primary tank”). The steel tank in this case
was divided by a steel bulkhead wall into separate compartments of 4,000 gallons
and 8,000 gallons. Second, an outer shell made of fiberglass and polyester resin
encases the tank (the “fiberglass shell” or “secondary tank”). Third, an empty
space sits between the steel tank and the fiberglass shell (the “interstitial space”).
A monitoring tube that runs through the steel tank allows the interstitial space to be
checked for fluids, which, if present, may indicate a leak in either the steel tank or
the fiberglass shell, depending on the type of fluid present.
Modern Welding delivered the tank to the site in late May 2010. Upon
delivery, the interstitial space was checked and found to be able to maintain a
vacuum, indicating no leakage. OEC’s Superintendent visually inspected the tank
before installation and saw no damage to its fiberglass shell. OEC installed the
tank on June 9, 2010.
In general terms, a tank is installed by placing it on top of bedding material
(here, sand) in an excavated pit, filling in the pit around the tank with backfill
material (again, sand, in this case), and then paving over the area with concrete, so
that, for example, cars can drive over the area. While the term “backfill” in the
record can refer to the material both underneath and surrounding the tank, we use
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the terms “bedding” or “bedding material,” when possible, to refer specifically to
the material directly underneath and supporting the tank.
OEC’s Superintendent supervised the installation process and completed an
installation checklist provided by Modern Welding. The Superintendent testified
that OEC fully complied with the installation instructions. However, the
installation checklist reflects no response to the following question: “Has special
care been used to ensure backfill compaction along the tank’s bottom quadrant?”
The installation instructions explain in slightly more detail that “[s]pecial care
should be used to ensure that the backfill is properly installed to evenly support the
bottom quadrant of the tank.”
In August 2012, OEC reported finding diesel fuel in the interstitial space.
Modern Welding came out to inspect the tank and could not get the interstitial
space to hold a vacuum, indicating a leak. 2 On August 21, 2012, a third-party
company, National Tank Monitor, inspected the tank at OEC’s request and found a
leak in the primary tank, according to OEC President Geoffrey Smith. Modern
Welding also had the tank inspected. In early September 2012, C&S Petroleum
removed the fuel in the tank, cut an access opening, and entered the tank. Inside,
C&S Petroleum found what it described as a two-foot by seven-foot “flat spot” on
2
There were also two prior instances, in March 2011 and March 2012, when Modern
Welding came out to check on a report of fluid in the interstitial space. On both occasions,
Modern Welding was able to re-establish a vacuum.
5
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the bottom of the 8,000-gallon compartment near the bulkhead wall. Later that
month, Superior Services inspected the tank and, while it could detect no breach in
the primary tank, it detected a breach in the fiberglass shell.
OEC requested a replacement tank from Modern Welding under the limited
warranty covering the tank, which warranted that the tank would be “free from
defects in materials and workmanship.” Under the warranty, Modern Welding had
discretion to repair or replace the tank or to refund the original purchase price.
Critically, the warranty applied only if the tank was “installed in accordance with
the installation instructions . . . as evidenced by the return of the completed
installation checklist.”
On October 2, 2012, after informal attempts at resolution failed, OEC’s
counsel sent a letter to Modern Welding demanding a replacement tank or a refund
under the warranty because there was “clear evidence of a defect in the
manufacture and construction” of the tank. The letter stated that OEC planned to
“cover the costs of rectifying this situation,” including the costs of obtaining and
installing a new tank, and that, if Modern Welding did not comply with OEC’s
demand, “Oil Equipment will seek recovery of all of its costs from Modern
Welding.” Id. Clearly, at this point, OEC knew that litigation was a possibility.
In a response letter sent on October 4, Modern Welding attributed the
problems with the tank to improper installation, which “would not be covered by
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the warranty.” Modern Welding was “of the opinion that the backfill was not
properly installed under the bottom quadrant of this tank, and that without this
proper support the tank shell became overstressed.” Id. The letter noted both the
presence of a flat spot on the bottom of the tank, which “illustrate[d] overstressing
of the shell,” and the omission of a response by OEC on the installation checklist
to the question, “Has special care been used to ensure backfill compaction along
the tank’s bottom quadrant?” Modern Welding concluded by stating that it was
willing to consider any evidence of defective material or workmanship as long as it
received “at least four days’ prior written notice of the date on which the tank is to
be exhumed, and as long as we are permitted to have a representative present to
witness the exhumation and to examine the tank thereafter.”
As the district court later found when dismissing the case, “It was important
for Modern Welding to witness the tank’s removal because the exhumation of a
potentially faulty tank offers the best chance to identify defects, and the installation
of a new tank necessarily erases signs of improper installation that may have
existed in the old bedding.” Robert Shepard, OEC’s expert, explained that the
removal process was “definitely . . . the best time to see what the issue was”
regarding whether the tank was properly installed, and that, once the tank is
removed and another tank is put in its place, the opportunity to inspect the bedding
where the original tank was situated is lost forever.
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Despite Modern Welding’s explicit request for notice of the exhumation,
OEC chose to proceed without telling Modern Welding. The exhumation took
place on October 16, 2012, having been scheduled more than a week beforehand.
OEC President Smith stated that he decided to proceed without Modern Welding
because OEC was under pressure from the gas-station owner to get a tank
operational again, and he felt that he did not have time to wait for Modern Welding
to determine if it would provide a replacement tank after witnessing the
exhumation. Modern Welding had told Smith a replacement tank could take up to
two weeks.
Though OEC excluded Modern Welding from the exhumation, OEC took
steps to collect its own evidence about whether the tank had been properly
installed. Smith asked Shepard, who had been hired by the gas station to do
environmental soil analysis for the exhumation, to observe the tank’s removal and
verify that the tank had been properly installed and that OEC had placed proper
backfill. At Smith’s request, Shepard did a “grain size analysis” of the backfill
material, checked the thickness of the backfill at the level where the tank sat,
visually inspected the bedding, and took photographs throughout the removal
process. Notably, though, Shepard did not conduct any testing to determine the
compaction level of the bedding. Nor did he take any other measurements of the
area “directly under the tank because [he] did not want to mess with the bed.”
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Smith also was present for the removal and discussed the possibility of litigation
with Shepard. Smith did not mention the alleged “flat spot” in the tank. After the
exhumation, Shepard prepared a report concluding that the tank had been installed
in substantial compliance with the installation instructions.
Once the tank was removed, Shepard noticed an eighteen-inch crack in the
fiberglass shell on the underside of the tank running along the line of the bulkhead
wall. The crack was on the bottom of the tank where it rested in the bed. Based on
the location of the crack—along the bulkhead—OEC believed that it was caused
by defective welds in the bulkhead or some other defect in that area.
After the exhumation, OEC transported the tank to an OEC employee’s land,
where it was stored in an open field. OEC took no steps to preserve the integrity of
the tank, and OEC did not notify Modern Welding of the tank’s removal or its
location. The tank was left exposed to the elements for over a year before OEC
filed this lawsuit in state court in November 2013. Smith knew that exposure to
the sun “wouldn’t be good” for the tank and would cause the fiberglass shell to
“dry out and degrade itself over a period of time.” And so it did. By the time
Modern Welding’s expert examined the tank in May 2014, the tank had been in the
field for almost nineteen months, and the original crack, according to the expert’s
preliminary report, had “grossly changed since the Tank was first removed from
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the ground.”3 The expert opined that “due to improper storage and preservation,
weather exposure, and handling, there is no way anyone can now determine what
might have caused the crack in the outer fiberglass shell of the tank.” Id. at 9.
Modern Welding removed the lawsuit from state court to the United States
District Court for the Northern District of Alabama in early January 2014. On
January 20, 2015, less than two weeks before the close of discovery and after the
expert-disclosure deadline, OEC disclosed for the first time that it had the bottom
portion of the tank cut out and tested to determine if the bulkhead welds were
defective. The testing occurred on December 15, 2014.
B. Procedural History
In the operative amended complaint, OEC alleged that the tank was
defectively designed or manufactured and that Modern Welding had breached both
express and implied warranties. Modern Welding moved for summary judgment
on grounds that OEC had destroyed critical evidence and could not support its
claims. OEC responded in opposition to summary judgment.
3
In its reply brief, OEC contends that the district court should not have considered the
preliminary report of Modern Welding’s expert, Dean Harris, because OEC had not been
permitted to depose him and had moved to strike his report before the district court. But OEC
did not raise this issue in its initial brief on appeal, instead merely referencing its motion to strike
in passing, and we generally do not consider arguments raised for the first time in a reply brief.
See Sapuppo v. Allstate Floridian Ins. Co., 739 F.3d 678, 680–82 (11th Cir. 2014) (explaining
that a party abandons an issue by making only passing references to it in an initial brief, and that
we do not consider arguments raised for the first time in a reply brief).
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The district court dismissed the case with prejudice, finding that OEC
destroyed evidence vital to the action on three separate occasions. First, OEC
exhumed the tank, prepared a new bedding and backfill, and installed a
replacement tank without notifying Modern Welding. Second, OEC failed to
preserve the tank once it had been removed, instead leaving it exposed to the
elements. Third, OEC had destructive testing performed on the tank, again without
notifying Modern Welding, while the lawsuit was pending.
These actions, according to the district court, resulted in severe prejudice to
Modern Welding because the spoliation of critical evidence, the practical
importance of which “cannot be overstated,” deprived Modern Welding of the
opportunity to put on a complete defense. Specifically, the court found, Modern
Welding could have prevailed in defending against OEC’s claims had it been able
to show that the tank was improperly installed or that the welds and fiberglass shell
were not defective. But “because the tank’s bedding, backfill, fiberglass shell, and
bulkhead welds cannot be restored, and the information these pieces of evidence
might have yielded is not otherwise available,” the prejudice to Modern Welding
could not have been cured.
The district court also determined that OEC acted in bad faith. OEC, the
court reasoned, chose to exclude Modern Welding from the exhumation despite an
unambiguous request for notice. Then, after the exhumation, OEC could have, but
11
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did not, grant Modern Welding’s request to examine the tank, and it failed to take
any precautions to preserve the tank. Finally, “in the midst of litigation that
already had triggered allegations of spoliation,” OEC undertook destructive testing
on the bulkhead welds, again without notice. The court concluded, “Any of these
instances of spoliation might be sufficient to demonstrate bad faith. Taken
together, they demand dismissal.” OEC now appeals.
II. DISCUSSION
A. Standard of Review
We review a district court’s decision regarding spoliation sanctions,
including a dismissal with prejudice, for an abuse of discretion. Mann v. Taser
Int’l, Inc., 588 F.3d 1291, 1310 (11th Cir. 2009); Flury v. Daimler Chrysler Corp.,
427 F.3d 939, 943 (11th Cir. 2005); see Chambers v. NASCO, Inc.,
501 U.S. 32,
55,
111 S. Ct. 2123, 2138 (1991) (sanctions under inherent powers reviewed for
abuse of discretion). Abuse-of-discretion review recognizes the range of possible
conclusions the trial judge may reach; therefore, when applying this standard of
review, we must affirm unless we find the judge has made a clear error in
judgment or has misapplied the law. Amlong & Amlong, P.A. v. Denny’s, Inc.,
500
F.3d 1230, 1238 (11th Cir. 2006).
B. Governing Law
1. Spoliation Sanctions Generally
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A district court has “broad discretion” to impose sanctions as part of its
“inherent power to manage its own affairs and to achieve the orderly and
expeditious disposition of cases.” Flury, 427 F.3d at 944. Sanctions for spoliation
of evidence are intended “to prevent unfair prejudice to litigants and to insure the
integrity of the discovery process.”
Id. “Spoliation” refers to “the destruction or
significant alteration of evidence, or the failure to preserve property for another’s
use as evidence in pending or reasonably foreseeable litigation.” West v. Goodyear
Tire & Rubber Co.,
167 F.3d 776, 779 (2d Cir. 1999).
To determine whether and what sanctions are warranted for spoliation of
evidence, courts should primarily consider the extent of prejudice caused by the
spoliation (based on the importance of the evidence to the case), whether that
prejudice can be cured, and the culpability of the spoliator. For example, in Flury
we identified the following five factors as relevant to the analysis: (1) the
prejudice to the defendant; (2) whether the prejudice can be cured; (3) the practical
importance of the evidence; (4) whether the plaintiff acted in bad faith; and (5)
“the potential for abuse if expert testimony about the evidence was not excluded.”
Flury, 427 F.3d at 945. Similarly, Alabama state law frames the relevant factors as
follows: “(1) the importance of the evidence destroyed; (2) the culpability of the
offending party; (3) fundamental fairness; (4) alternative sources of the
information obtainable from the evidence destroyed; and (5) the possible
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effectiveness of other sanctions less severe than dismissal.” Story v. RAJ Props.,
Inc., 909 So. 2d 797, 802–03 (Ala. 2005).4
Sanctions for spoliation of evidence include “(1) dismissal of the case; (2)
exclusion of expert testimony; or (3) a jury instruction on spoliation of evidence
which raises a presumption against the spoliator.” Flury, 427 F.3d at 945.
Because dismissal is the most severe sanction available, it “should only be
exercised where there is a showing of bad faith and where lesser sanctions will not
suffice.”
Id. at 944. We have found that dismissal may be warranted where the
“spoliation of critical evidence . . . deprive[s] the opposing party of an opportunity
to put on a complete defense.”
Id. at 947.
With regard to the spoliator’s culpability, “this circuit does not require a
showing of malice in order to find bad faith,” but we do require something more
than “mere negligence.” Mann, 588 F.3d at 1310; see
Flury, 427 F.3d at 946;
Bashir v. Amtrak,
119 F.3d 929, 931 (11th Cir. 1997). Generally, bad faith may be
found where the plaintiff’s actions are responsible for the spoliation of evidence
and “the plaintiff fully appreciated the significance of the evidence to the
anticipated litigation.”
Story, 909 So. 2d at 804; see
Flury, 427 F.3d at 945
4
We held in Flury that “federal law governs the imposition of sanctions for failure to
preserve evidence in a diversity suit.” Flury, 427 F.3d at 944. Nonetheless, we looked to the
law of the forum state, Georgia, because it provided “some guidance,” was relied upon by the
parties and the district court, and was “wholly consistent with federal spoliation principles.”
Id.
In this case, for similar reasons, we look to Alabama state law on spoliation sanctions, at least to
the extent it is consistent with Flury.
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(finding the plaintiff at fault because the “plaintiff should have known that the
vehicle, which was the very subject of his lawsuit, needed to be preserved and
examined as evidence central to his case”).
2. Flury v. Daimler Chrysler Corp.
Because this Court’s decision in Flury addressed dismissal as a spoliation
sanction in circumstances similar to those in this case and further, because Flury is
relevant to many of the issues before us, we examine the decision in some detail.
In Flury, the plaintiff sued an automobile manufacturer, claiming that he was
injured by a defect in his truck’s airbag system, which failed to deploy when he fell
asleep at the wheel and crashed into a tree. Flury, 427 F.3d at 940–41. The
plaintiff asserted that the airbags were defective because, according to the
plaintiff’s expert, the airbags should have deployed at the speed at which he hit the
tree.
Id. at 941. After the accident, the truck was transported first to an auto-body
shop and then to the residence of the plaintiff’s parents. Eventually, the plaintiff’s
insurer sold the truck for salvage. Despite a request by the manufacturer to inspect
the truck, the plaintiff did not tell the manufacturer the location of the truck or
notify the manufacturer that the vehicle would be sold for salvage.
Id.
The district court allowed the case to proceed to trial despite the
manufacturer’s request for summary judgment on the basis of spoliation.
Id. at
942. At trial, the court instructed the jury “to apply a rebuttable presumption that
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the evidence not preserved, in this case the vehicle, was unfavorable to the party
responsible for spoliation,” leaving for the jury’s determination the responsible
party. Id. at 942–43. The jury returned a verdict in favor of the plaintiff.
On appeal, we held that the district court abused its discretion by not
dismissing the case based on the plaintiff’s spoliation of critical evidence—the
truck. Id. at 943. We explained that the manufacturer suffered severe prejudice
because it was deprived of the opportunity to gather evidence in its defense. See
id. at 946. Specifically, the manufacturer did not have the opportunity to examine
the vehicle’s crush pattern (“often the best evidence of a vehicle’s impact speed”),
its airbag control module (“capable of providing reliable evidence of airbag
malfunction”), or its present condition (to determine whether the truck “remained
in its ‘condition when sold’ at the time of the accident, as required by Georgia
law”).
Id. We concluded that “direct examination of the vehicle’s condition was
critically important to this case,” that the spoliation of the truck “forced experts to
use much less reliable means of examining the product’s condition,” and that the
court’s jury instruction was inadequate to cure the prejudice to the defendant.
Id.
We also found the requisite “bad faith” because the plaintiff knew both the
location of the vehicle and the defendant’s desire to inspect it, but the plaintiff
“ignored defendant’s request and allowed the vehicle to be sold for salvage without
notification to defendant of its planned removal.”
Id. at 944–45. And, in any
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event, we reasoned, “plaintiff should have known that the vehicle, which was the
very subject of his lawsuit, needed to be preserved and examined as evidence
central to his case.” Id. at 946. While the district court had suggested that the
defendant was partially at fault for failing to inspect the truck, we concluded that
“culpability rested solely upon the plaintiff” because the plaintiff was “the only
party in a position to preserve the vehicle and failed to do so.”
Id.
Finally, we concluded that the destruction of the truck left potential for
abuse in the case.
Id. The plaintiff’s expert had testified regarding the vehicle’s
condition based on post-accident photographs and an accident report, and this
evidence had “some value,” but the plaintiff’s spoliation prevented the defendant
“from obtaining much more reliable evidence tending to prove or disprove the
validity” of the expert’s statements.
Id.
Overall, we held that the plaintiff’s “spoliation of critical evidence . . .
deprived the opposing party of an opportunity to put on a complete defense.”
Id. at
947. The manufacturer’s request to examine the vehicle was ignored, and, as a
result, “defendant was unable to examine the vehicle’s condition.”
Id. Because
the evidence was crucial and the prejudice incurable, we held that dismissal was
the only appropriate sanction.
Id.
C. Application
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Here, the district court did not abuse its discretion by dismissing the case
with prejudice as a sanction for OEC’s spoliation of evidence. With knowledge
that the evidence was critical to a potential lawsuit and to Modern Welding’s
potential defenses, OEC destroyed or allowed the destruction of the bedding and
the tank without providing Modern Welding, as it had requested, notice and an
opportunity to gather evidence in its defense. In dismissing the case with
prejudice, the court correctly applied the law and reasonably concluded that the
most severe sanction was warranted. See Amlong & Amlong, P.A., 500 F.3d at
1238. After reviewing the relevant Flury factors, we agree with the district court’s
assessment that, as in Flury, “Plaintiff’s spoliation of critical evidence in this case
deprived the opposing party of an opportunity to put on a complete defense.” See
Flury, 427 F.3d at 947.
1. OEC’s Spoliation of Evidence Resulted in Severe Prejudice
The ultimate issue in controversy in this case was what caused the tank to
leak. OEC believed that the breach was due to a manufacturing or design defect,
such as defective welds, whereas Modern Welding attributed the breach to OEC’s
improper installation. Significantly, Modern Welding’s theory, in turn, rested on
its belief that “the backfill was not properly installed under the bottom quadrant of
this tank, and that without this proper support the tank shell became overstressed.”
Modern Welding cited two reasons in particular for suspecting improper
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installation as the cause: (1) the installation checklist from OEC omitted a
response to the question, “Has special care been used to ensure backfill compacting
along the tank’s bottom quadrant?”; and (2) inspectors hired by Modern Welding
observed a two-foot by seven-foot “flat spot” inside the tank, which, according to
Modern Welding and its expert, was consistent with improper bedding. Modern
Welding asked OEC for advance notice so that it could witness the exhumation and
examine the tank.
Despite OEC’s assertions to the contrary, we think it is obvious based on
these facts that the bedding was critically important to Modern Welding’s
contention that the tank was improperly installed. 5 Even OEC’s expert testified
that the removal process was “definitely . . . the best time to see what the issue
was” regarding whether the tank was properly installed. And, as the district court
found, if Modern Welding had been notified of the exhumation, it could have
conducted tests, such as soil compaction tests, during the exhumation which
“might have revealed a failure to compact the backfill along the tank’s bottom
5
OEC’s briefing is replete with assertions suggesting that the “bedding was not an issue”
for Modern Welding because Modern Welding never asked to preserve the bedding for
inspection and was instead focused on the tank only. True, Modern Welding did not explicitly
state its intention to test the bedding in the October 4 letter, but the bedding quite clearly was the
focus of Modern Welding’s October 4 letter, and it was critical to the question of whether the
tank had been properly installed, as even OEC recognized. Indeed, OEC President Smith asked
Shepard to witness the exhumation, test the backfill, take photographs, and prepare a report on
whether the tank had been properly installed. It makes little sense to say that Modern Welding
was focused on only the tank when Modern Welding explicitly attributed the tank’s failure to
improperly installed bedding.
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quadrant, evidence that would be consistent with OEC’s omission on the tank’s
installation checklist.” And Modern Welding also might have determined that the
tank developed a flat spot in the steel compartment and a crack in the fiberglass
shell because of improper installation. Yet OEC ignored Modern Welding’s
explicit request for notice of the exhumation and exhumed and replaced the tank in
Modern Welding’s absence. The replacement of the tank prejudiced Modern
Welding because it prevented Modern Welding from directly examining the
bedding and verifying its theory that the tank had been improperly installed. See
Flury, 427 F.3d at 946 (finding severe prejudice because “direct examination of the
vehicle’s condition was critically important to this case”).
Then, after the exhumation, Modern Welding was prejudiced by OEC’s
failure to preserve the integrity of the tank. OEC let the tank sit exposed to the
elements in an open field for over a year before filing suit. By the time Modern
Welding’s expert examined the tank in May 2014, the original eighteen-inch crack
in the fiberglass shell, observed by Shepard in October 2012, had “grossly
changed” due to sun exposure. Modern Welding’s expert opined that “due to
improper storage and preservation, weather exposure, and handling,” it was not
possible to “now determine what might have caused the crack in the outer
fiberglass shell of the tank.”
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And while OEC responds that Modern Welding was not prejudiced because
the existence of the crack is undisputed, that was never at issue. What matters is
that the deterioration of the tank prevented Modern Welding from developing
evidence for the purpose of showing that the crack in the fiberglass shell was not
caused by defective materials or workmanship. The district court did not abuse its
discretion in finding prejudice on this point.
Finally, the district court determined that Modern Welding was prejudiced
by OEC’s destructive testing of the bulkhead welds because, “[i]f Modern Welding
had participated in the testing of the tank’s bulkhead welds, Modern Welding
might have developed expert testimony regarding the welds’ condition and the
extent to which the condition could have caused a breach in the tank.” OEC
downplays the significance of this testing in its reply brief, asserting that the
evidence it obtained was unnecessary and likely could not have been introduced
anyway due to discovery deadlines. We likewise do not focus on this act of
spoliation with regard to the prejudice inquiry, but we note that OEC does not
directly challenge the court’s finding on this point.
Overall, we conclude that the bedding and the tank are as central to this case
as the truck was in Flury. By first excluding Modern Welding from the
exhumation, the best time to assess any installation issues, and then failing to
preserve the tank or to allow Modern Welding to examine it shortly after
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exhumation, OEC prevented Modern Welding from gathering critical evidence
relevant to its theory that the tank was not defective and that improper installation
was the culprit.
2. The Prejudice to Modern Welding Cannot be Cured
The district court determined that the prejudice to Modern Welding was
incurable. Specifically, the court found, “the tank’s bedding, backfill, fiberglass
shell, and bulkhead welds cannot be restored, and the information these pieces of
evidence might have yielded is not otherwise available.” We agree.
We are not convinced by OEC’s arguments that any prejudice can be cured
by alternative sources of evidence available or that sanctions less severe than
dismissal would be effective. First, Modern Welding’s initial inspections (through
third-party testing) of the inside of the tank plainly are no substitute for examining
the bedding and backfill outside of the tank. As indicated by OEC’s expert, the
best time to determine whether the tank was properly installed was during
exhumation. Nor can we say that these initial inspections, when the parties were
still attempting to figure out if, and, if so, where, the tank was leaking, could
adequately substitute for a later inspection of the tank after the crack in the
fiberglass was discovered. Extrapolating from these initial inspections would be
far less reliable than examining the bedding or the tank itself once the crack was
discovered. Cf. Flury, 427 F.3d at 946 (finding that prejudice was not cured where
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the spoliation of the truck “forced experts to use much less reliable means of
examining the product’s condition”).
Second, photographs of the bedding, however “extensive,” likewise are no
adequate substitute for direct examination of the bedding. OEC has offered no
plausible explanation for how one could determine, for example, the soil
compaction level of the bedding through the photographs. Without expressing any
opinion on whether photographs could constitute an adequate substitute in another
case based on different facts, the photographs of the bedding in this case, like the
post-accident photographs of the truck in Flury, do not cure the prejudice caused
by Modern Welding’s exclusion from the exhumation. See id. at 941, 946
(implicitly concluding that the post-accident photographs of the truck, which were
relied upon by the plaintiff’s expert, did not cure the prejudice caused by the
manufacturer’s inability to directly examine the truck).
Third, we reject OEC’s contention that no prejudice occurred, or that any
prejudice can be cured, because “[t]here are at least three witnesses who can testify
that the bedding was prepared to the appropriate standard”: Smith, Shepard, and
the OEC Superintendent who supervised the installation of the tank. If anything,
such one-sided testimony heightens the potential for prejudice because Modern
Welding would be able to rebut it with its own evidence. Certainly this testimony
has value, and we do not mean to imply that any of these witnesses would testify as
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to anything other than the truth as they saw it, but, as in Flury, “we cannot ignore
the fact that defendant was precluded from obtaining much more reliable evidence
tending to prove or disprove” the validity of testimony that the tank was properly
installed. Id. at 946. Essentially, OEC gathered evidence favorable to its position
while precluding Modern Welding from doing the same. See
Story, 909 So. 2d at
805.
Furthermore, even assuming that OEC’s expert, Shepard, who conducted
some testing during the exhumation process, could be considered a neutral and
objective expert on installation, his opinion still is not an adequate, alternative
source of evidence that could remedy the prejudice to Modern Welding. Notably,
Smith did not inform Shepard of the flat spot observed by Modern Welding’s
inspectors, so Shepard would have had little reason to focus on whether the
bedding might have caused the flat spot. Shepard also did not do any testing on or
measurements of the bedding that could have verified or dispelled Modern
Welding’s belief that OEC failed to ensure backfill compaction along the tank’s
bottom quadrant. Overall, we are unconvinced that the availability of alternative
sources of evidence could cure the severe prejudice to Modern Welding.
Nor did the district court abuse its discretion in determining that, assuming
OEC acted in bad faith, which we address below, no lesser sanction would be
effective to cure the severe prejudice in this case. The tank and the bedding on
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which it sat were the very subjects of this lawsuit. OEC’s spoliation of this
evidence struck at the heart of the matter and prevented Modern Welding from
putting on a complete defense. See Flury, 427 F.3d at 946 n.14 & 947. Therefore,
OEC has not shown that the district court committed a clear error in judgment by
concluding that the sanction of dismissal was warranted.
3. OEC Acted in Bad Faith
Finally, the record amply supports the district court’s determination that
OEC acted in bad faith. As the court found, OEC chose to exclude Modern
Welding from the exhumation despite Modern Welding’s request for notice and an
opportunity to be present. In doing so, OEC forever destroyed any evidence
Modern Welding may have obtained through direct examination of the bedding.
When it made that decision, OEC knew that the evidence was crucial to
Modern Welding’s claim that the tank was improperly installed. OEC, for
instance, gathered its own evidence on the matter in response to Modern Welding’s
letter identifying the bedding as an issue.
OEC also knew that litigation was a possibility at the time of the
exhumation: OEC had sent a demand letter through counsel raising the possibility
of litigation about two weeks earlier; and Smith discussed the possibility of
litigation with Shepard on the date of the exhumation. Then, after the exhumation,
OEC had a responsibility to preserve the tank for potential use as evidence, but
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OEC failed to “grant[] Modern Welding’s request to examine the tank or take[]
precautions to preserve the tank” and “instead OEC let the tank degrade.” OEC
later had destructive testing done on the tank without notifying Modern Welding.
Based on these facts, the district court reasonably concluded that OEC acted
in bad faith. These facts make it apparent that OEC “fully appreciated the
significance of the [spoliated] evidence to the anticipated litigation.” See Story,
909 So. 2d at 804.
OEC claims that it did not act in bad faith because it expected the bedding to
support its position, so it did not destroy evidence that it knew was favorable to
Modern Welding. In support of this argument, OEC relies on the Alabama
Supreme Court’s statement in Story that, in a “classic case” of spoliation under
Alabama state law, the plaintiff “purposefully and wrongfully destroyed evidence
he knew was supportive of the interest of his opponent.” Story, 909 So. 2d at 804.
OEC reasons that its conduct does not satisfy that standard. But this standard
strikes us as equivalent to a showing of “malice,” which, while clearly sufficient, is
not necessary to support a finding of bad faith in this Circuit. 6 See
Mann, 588 F.3d
at 1310.
6
In any case, the fact that OEC destroyed evidence to which it knew Modern Welding
wanted access could support an inference that OEC suspected the bedding might not be favorable
to its case. See Story, 909 So. 2d at 805 (“[T]he trial court could have inferred that Story knew
that those inspections would not be beneficial to his case or he would not have . . . evaded the
inspections.”).
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In Flury, for example, the analysis of bad faith did address whether the
plaintiff knew that evidence from the truck would be favorable to the defendant.
Rather, we “weigh[ed] the degree of the spoliator’s culpability against the
prejudice to the opposing party.” Flury, 427 F.3d at 946. And we found that
culpability rested squarely with the plaintiff because the plaintiff “was the only
party in a position to preserve the vehicle and failed to do so.”
Id. The plaintiff
knew the location of the vehicle, knew that the defendant wanted to inspect it, but
let the vehicle be sold for salvage, which caused extreme prejudice to the
defendant. See
id. at 945–46.
The same reasoning applies in this case. The duty to preserve evidence
critical to this case rested with OEC. But OEC excluded Modern Welding from
the exhumation and then failed to preserve the tank after exhumation. OEC
attempts to blame Modern Welding for failing to inspect the tank until after OEC
filed suit, but its efforts are misguided. Like the plaintiff in Flury, OEC failed to
respond to the opposing party’s request to inspect the allegedly defective product,
OEC had control over the product and did not inform the opposing party of its
location, and then OEC failed to preserve the product. See id. at 945–46. It makes
little difference that OEC kept the tank rather than salvaging it like the insurer in
Flury did with the car at issue in that case, since OEC allowed the tank to
deteriorate in an open field. And OEC’s contention that it should be excused since
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it had no reasonable means for storing the tank only serves to highlight its initial
choice to exclude Modern Welding from the exhumation. Permitting an inspection
at that earlier opportunity could have avoided the need for long-term storage of the
tank, and, quite possibly, this entire litigation. Culpability, therefore, rested with
OEC, and the prejudice to Modern Welding was great. See id. at 946.
Finally, OEC claims that it did not violate any court orders by conducting
destructive testing on the bulkhead welds, but that assertion in no way undermines
the district court’s finding that OEC again chose to gather evidence in a manner
that denied Modern Welding the same opportunity.
In sum, the record amply supports the district court’s finding of bad faith on
the part of OEC resulting in severe prejudice to Modern Welding.
III. CONCLUSION
After a close examination of the facts of this case and the similar facts of
Flury, we hold that the district court did not abuse its discretion by dismissing this
product-liability case with prejudice as a sanction for OEC’s bad-faith spoliation of
evidence critical to the litigation. Accordingly, we affirm the judgment of the
district court.
AFFIRMED.
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